Financial Market Watch

Markets stock markets struggled towards the end of the month in April. Yousuf (2012) reports that the Dow Jones Industrial Average was flat for the month, the S&P 500 posted a minor loss and the NASDAQ dropped 1.5%. All three indices were down for the final week of the month. One of the reasons why the markets struggled during the week was that a report revealed that the GDP grew at 2.2%, a slower rate than was expected by some observers (Censky, 2012).

The report also noted that the GDP was being dragged down by government spending cuts. There was a report on Thursday from the Boston Consulting Group that investment banks would need to cut employees in order to achieve profitability targets, in part because the market for deals is generally down, and expected to stay that way (Reuters, 2012). Despite the economic weakness, there were some deals that helped to buoy markets last week.

Barnes & Noble opened the week by announcing that it sold a 17.6% stake in the Nook e-reader to Microsoft. In another deal, Energy Transfer Partners announced the purchase of Sunoco for $5.3 billion. In general, the markets did not have any major new drivers, and therefore simply drifted lower, following the trend for the month. It was noted that in May there is an expectation for sales as the markets prepare for summer.

The lack of major news drivers indicates that there is a lack of conviction in the markets, so the minor moves over the past week cannot be taken as particularly indicative of future trends. In commodity markets, gold prices continued their decline of the past three months. At $1,660 an ounce, gold is now down 4% for the year (Harvey, 2012). Gold's value is declining because it is starting to lose its status as a safe haven.

The signs of economic growth in the U.S., however slow, are eroding the safe haven status of gold, and the bull market of 2011 had brought values to very high levels. In oil markets, prices have maintained levels above $100 per barrel in the U.S., and have pushed closer to $120 for Brent crude. Oil prices have been affected by U.S. economic data, which have been inconclusive with respect to the pace of growth. When economic indicators are low, oil prices begin to dip.

There is also concern with respect to economic weakness in the Eurozone. Strength in China, however, has propped up the price of oil as well. Natural gas prices, however, continued to trade at low levels, the lowest in ten years (Strumpf, 2012). At this point, if the slump continues there is concern that some producers will exit the market. A strong harvest for Kansas winter wheat is pushing wheat futures down, coming on the heels of last year's supply shortage as the result of drought.

The warmer weather in the winter appears to have contributed to the strength of the harvest (Dreibus, 2012). There is also a record supply of pork coming to the market this year, and that is expected to push pork prices lower. Iron ore prices have also moved, rising slightly in recent days as China's steel producers have ramped up production again (Dow Jones, 2012).

China is a key driver of iron ore prices, although these can vary more than other commodities because of the inherent difficulty in shipping iron ore around the world. In terms of currency markets, the U.S. dollar fell against the euro, the yen, the pound, the Swiss franc and the Canadian dollar for the week. The main driver of news was the sluggish economic reports, which called into question the economic strength of the U.S. dollar for the short and medium-term.

It has also been speculated that currency markets are more willing to take on risk lately than they have been, something that would currency traders move out of the dollar and into other currencies (Kruger, 2012). There was no major news in terms of the euro in the past week, so that currency did not make any major moves. The U.S. Treasuries market finished the month strongly, as April in total saw Treasuries as the highest gainers.

The Treasuries market has benefited from its status as a risk-free haven, given the ongoing sluggishness in U.S. markets and weakness over in Europe. This has investors cashing out of the market and into Treasuries. There remains the risk that further quantitative easing might be required should the economy slip further back into recession. The debt markets in Europe were also affected by recession concerns and a downgrade by S&P on Spain's debt.

Again, this drove investors back towards the safety of Treasuries, pushing them higher for the week and the month. Lastly, international markets were mixed last week. The FTSE in London gained towards the end of the week, as did the DAX, the CAC 40 and the Hang Seng. The Nikkei fell last week. The European markets enjoyed success despite the risk of recession in Europe. Speculation is that the gains in Europe and on the FTSE in particular, are related to the hope that the weakness in the U.S.

will actually spur another round of expansionary policy at the U.S. Federal Reserve (Julius, 2012). The idea is that this increased liquidity will be beneficial for financial markets, although in the past such gains have been short-term only. The decline in expected GDP points to sluggish demand, and that is the real problem not a lack of liquidity. Nevertheless, most indices posted gains on Friday on the speculation that sluggish economic growth would lead to further quantitative easing.

The Nikkei struggled as the result of ongoing issues in the Japanese economy, related to demand in the domestic market. While Japan also stands to gain, theoretically, from quantitative easing, the concerns about the Japanese economy continue to weigh on the Nikkei. Overall, world markets had a decent week, but there was little in the way of major news. The news that drove the markets was largely speculative, and a handful of minor deals moved markets as well. However, there were few.